James Timpson, chief executive of Timpson Group:
“I have just got back from Germany, where I’ve been looking for ideas to bring back to Timpson shops in this country. Germany is a good source of inspiration because the weather there is similar to ours — it rains a lot. And rain is good for cobblers. The more it rains, the more shoes wear out. If we were to open in Dubai, I doubt we would do well.
The German retail scene is different from what I see when I travel around Britain, visiting more than 1,000 of our shops each year. There were hardly any vacant sites over there, no closing-down sales — and the high streets and shopping centres were busy. I’m sure the landlords are also doing well.
The Germans are just behind us in the amount they buy online, and they have many of the same brands as our high streets. The problem in Britain is that we have way too many shops — far more than in Germany.
My company rents 95% of its shops from landlords whose aim is to get us to pay the highest rent possible. My fantastic property team battle to find evidence to prove that rents should be lower. We were on the losing side of this cat-and-mouse game for years after I joined the business in 1995. In the past four years, however, the tide has turned.
In the 40 lease renewals we have completed in the past three months, the rents have come down by an average 9.6% — and that doesn’t take into account the generous rent-free periods we’ve also pocketed. There are some shops where the rents have come down by 80%, and more than a dozen where we pay no rent at all.
You will find many retailers complaining about high rents, but you will find even more complaining about high business rates.
When I became chief executive, in 2002, I started a discipline I still abide by today, and still hate doing just as much. I go through the profit-and-loss accounts for every one of our 2,100 shops every month, looking for errors and bad performance. While I’m no accountant, it’s amazing what you can learn.
The biggest change over this time has been how much the rates bill — the amount we pay local authorities as a property tax — has gone up (business rates brought in £25bn for the government in England last year).
The rule of thumb used to be that rates made up 30% of the rent. The figure is now 44% and growing. You can see why many retailers find this difficult to afford and difficult to understand. With online shopping growing, more out-of-town retail parks popping up and consumer sentiment weak, retailers are closing shops at an alarming rate.
However, I don’t think rates are the real problem — it’s rents.
Rates are based on the value of the property. If that goes up, the rates go up. It can take some time for the figure to reflect the true value of the building — and years to be adjusted to a fair level. The lag is the problem.
The Louis Vuitton shop on London’s Bond Street saw its annual rates bill soar from £3.9m to £8.5m a couple of years ago — up 118%. The nearby Chanel shop suffered a 135% increase. The rents rose so steeply because the value of the buildings they trade from had also gone up dramatically. These prized assets come with big bills.
Because of the lag in assessing what each property is worth, many in my chain have been overpaying rates for some years. In essence, Timpson shops in less glamorous locations have been subsidising global designer brands such as Chanel. While we never look for pity, we do like to play a fair game.
Now, on to rents. As they come down, we are seeing a drop in the rates we pay. Landlords are becoming more astute in recognising that it’s often better to take a reduced rent than to receive no rent at all and be forced to pick up an “empty rates” bill on top. This process takes years to unwind — up to 10. Most leases we sign run for 10 years, with a break clause at five. Only at these two points can we challenge the landlord to get the rent down. We still don’t win them all — the rent in Nantwich went up last week!
So retailers shouldn’t worry about the rates, which they can’t control, and concentrate instead on battling with landlords to get the lowest possible rent. This will, in time, lead to lower rates.
I’m proud of the amount we pay in rates (£8.6m last year, against a rent bill of £19.3m). This money pays for our customers to drive on roads to get to the shops, for our sick colleagues to go to hospital, and for schools to educate our children.
While we may not like paying too much, our rates go a long way to help the communities who shop with us. Other retailers should think the same way.”
Source:Sunday Times (pay wall)